Personal Products Stocks

Colgate-Palmolive Co. Valuation – April 2017 $CL

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Colgate-Palmolive Co (CL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Colgate-Palmolive Company (Colgate) is a consumer products company. The Company operates in two product segments: Oral, Personal and Home Care, and Pet Nutrition. The Oral, Personal and Home Care product segment is operated through five geographic segments, which include North America, Latin America, Europe, Asia Pacific and Africa/Eurasia. The Company’s oral care products include Colgate Total, Colgate Sensitive Pro-Relief, Colgate Max Fresh and Colgate Optic White. The Company is also engaged in various product categories of the personal care market with operations in liquid hand soap, which it sells under the Palmolive, Protex and Softsoap brands. The Company manufactures and markets a range of products for the home care market, including Palmolive and Ajax dishwashing liquids, Fabuloso and Ajax household cleaners and Murphy’s Oil Soap. The Company, through its Hill’s Pet Nutrition segment (Hill’s), manufactures pet nutrition products for dogs and cats.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CL – April 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $65,228,629,202 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.31 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 15.24% Fail
6. Moderate PEmg Ratio PEmg < 20 29.87 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 -271.55 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.31 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 6.31 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $2.46
MG Growth Estimate 0.33%
MG Value $22.55
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $35.66
MG Value based on 0% Growth $20.90
Market Implied Growth Rate 10.68%
Current Price $73.45
% of Intrinsic Value 325.72%

Colgate-Palmolive Company does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.41 in 2013 to an estimated $2.46 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 10.68% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Colgate-Palmolive Company revealed the company was trading above its Graham Number of $0. The company pays a dividend of $1.55 per share, for a yield of 2.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 29.87, which was above the industry average of 28.39. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-8.94.

Colgate-Palmolive Company receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$8.94
Graham Number $0.00
PEmg 29.87
Current Ratio 1.31
PB Ratio -271.55
Current Dividend $1.55
Dividend Yield 2.11%
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $4,338,000,000
Total Current Liabilities $3,305,000,000
Long-Term Debt $6,520,000,000
Total Assets $12,123,000,000
Intangible Assets $3,420,000,000
Total Liabilities $12,366,000,000
Shares Outstanding (Diluted Average) 898,400,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.87
Dec2016 $2.72
Dec2015 $1.52
Dec2014 $2.36
Dec2013 $2.38
Dec2012 $2.57
Dec2011 $2.47
Dec2010 $2.16
Dec2009 $2.19
Dec2008 $1.83
Dec2007 $1.60
Dec2006 $1.23
Dec2005 $1.22
Dec2004 $1.17
Dec2003 $1.23
Dec2002 $1.10
Dec2001 $0.95
Dec2000 $0.85
Dec1999 $0.74
Dec1998 $0.65
Dec1997 $0.57

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.46
Dec2016 $2.27
Dec2015 $2.12
Dec2014 $2.41
Dec2013 $2.41
Dec2012 $2.36
Dec2011 $2.19
Dec2010 $1.96
Dec2009 $1.78
Dec2008 $1.52
Dec2007 $1.34
Dec2006 $1.20
Dec2005 $1.17
Dec2004 $1.12
Dec2003 $1.05
Dec2002 $0.93
Dec2001 $0.81

Recommended Reading:

Other ModernGraham posts about the company

Colgate-Palmolive Co Valuation – January 2016 Update $CL
32 Companies in the Spotlight This Week – 12/6/14
Colgate-Palmolive Annual Valuation – 2014 $CL
10 Companies in the Spotlight This Week – 11/30/2013
ModernGraham Valuation: Colgate-Palmolive (CL)

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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